The European Central Bank is ready to take action if inflation falls too far below its forecast, one of its governing council members said today.

The comments by Ardo Hansson, the governor of Estonia's central bank, to the Wall Street Journal reiterate the bank's recent stance. Analysts have taken this to mean anything from negative deposit rates to a bond buying programme.

US factory activity and home sales miss forecasts

Photograph: Markit

Two pieces of disappointing economic news from America just gave the markets a little jolt.

Growth in America's factory sector has slowed slightly in April, according to Markit's monthly survey. The US manufacturing PMI, measuring activity across the sector, dropped to 55.4, down from 55.5 in March; analysts had expected a rise to 56.0.

And the number of new homes sold across America in March was much lower than expected, dropping 14.5% to an annual rate of 384,000 properties; well shy of Wall Street forecasts of a 2% rise to 450,000 rate.

That has knocked shares lower in Europe, where the FTSEurofirst 300 is now down 0.6%. The Dow Jones industrial average is down 30 points in earlyish trading, -0.2% at 16491.

As Annalisa Piazza of Newedge Strategy points out, these results dash hopes that home sales would pick up as America emerged from the blizzardy winter:

Adverse weather conditions have had a negative impact on housing activity over the winter months and today’s March failed to benefit from an upward technical correction.

Updated at 3.17pm BST

2.38pm BST

The WSJ has a neat explanation of how Brussels stretched the definition of a primary surplus especially for Greece, to turn a double-digit deficit into a primary surplus.

Ignoring interest payments on its debt cut the total by 4 percentage points, but that was only the start....

In 2013, these adjustments amounted to 9.5% of GDP, mainly reflecting the one-off cost of the support to the banking sector, which amounted to 10.8% of GDP according to the programme definition, and the transfers from Member States to Greece corresponding to profits on Greek Bonds held by the Eurosystem Central Banks, which amounted to 1.5% of GDP.

As flagged up early this morning, France's government has announced new, higher, deficit forecasts, which (if achieved) would see it hit the EC's demands by a whisker.

The Paris government now expects to run a deficit of 3.8% of GDP this year, dropping to 3% in 2015. That's the top end of the targets set by Brussels, who have already given France two more years to comply.

It has also raised its growth forecast, a little, to 1.0% this year from 0.9% previously. It also expects stronger growth in 2016 and 2017.

Here are the new forecasts, followed by the previous ones which were contained in the 2014 Budget:

Photograph: Thomson Reuters

Updated at 2.19pm BST

1.40pm BST

Today's wave of eurozone optimism has also reached Spain, where economy minister Luis de Guindos has suggested Spain this year's borrowing requirements could be reduced.

De Guindos told an audience in Madrid that Spain's debt issuance target for 2014 would be "substantially and significantly" cut, thanks to the prospect of higher tax revenues as Spain's economy recovers.

Reuters has more details:

Strong recent economic data could prompt the government to raise its 2014 economic growth forecast of 1 percent, which is already higher than the initial estimate of 0.7 percent.

The Bank of Spain expects gross domestic product (GDP) to grow by 1.2 percent this year and 1.7 percent in 2015. De Guindos said he expected average GDP growth of 1.5 percent in 2014 and 2015 after two years of economic contraction.

"The important thing here is not the exact decimal point ... but that with two years of average growth of 1.5 percent, our outlook is going to be different," de Guindos said.

Mujtaba Rahman, practice head at Eurasia Group, reckons Greece now has a good chance of receiving some debt relief, now that Brussels has rubber-stamped its primary budget surplus (see here onwards).

He writes:

The confirmation of Greece's primary's surplus alongside its recent successful return to capital markets will bolster Prime Minister Samaras's claim that no third bailout is necessary.

The government's tough stance is being motivated by difficult upcoming local and European elections, where New Democracy remains tied with Syriza and junior coalition partner PASOK looks set to do badly. In this context, the government will now also start pushing for debt relief, given the Eurogroup's commitment to reduce Greece's debt once its primary surplus was achieved.

Panos Tsakloglou, Greece's member of Eurogroup Working Group (EWG) is expected to put this issue on the table at tomorrow's EWG and a more formal discussion will likely follow in June in the context of the fifth Troika review.

Despite the government's narrative, the Eurogroup will maintain some involvement in Greece once the current program expires. As long as the new reform program comes with tough conditions, some minimal debt relief will likely be forthcoming.

12.05pm BST

The fundamental problem with Greece's primary budget surplus is it ignores so much of the 'bad stuff' (debt repayments, putting billions of euros into its banks, etc) .

The WSJ's Charles Forelle compares it to the less rigorous way some companies report their profits:

Greece's international creditors have said a primary surplus will entitle Greece to further debt relief. Discussions are set to be concluded in the second half of the year.

Most analysts expect the eurozone to lower the interest rates Greece pays on its loans or be granted another extension on when they have to be repaid.

A new dawn for Greece? Keramoti harbour near the northern Greek city of Kavala. Photograph: Petros Karadjias/AP

11.44am BST

EU: Greece has achieved its primary surplus

It's official.... the European Commission has agreed that Greece has achieved a primary budget surplus, if you strip out enough costs.

As expected, EC spokesman Simon O'Connor told reporters in Brussels that Greece had eliminated its deficit last year, if you ignore the (sizeable) cost of interest payments, recapitalising its banks, and other "one-off" costs.

In a show of support for Athens, O'Connor said Greece had achieved "remarkable progress":

· 36% of manufacturers expect total new orders to increase and 10% expect them to fall, giving a balance of +26%, the highest since October 1996 (+27%)

. A balance of +26% expect new domestic orders to rise (34% expect an increase and 8% a fall), the highest since April 1977 (+29%) and +22% expect new export orders to go up (33% expecting an increase and 11% a fall)

· 41% of firms anticipate a rise in output volumes and 10% a fall, giving a rounded balance of +32%. 27% expect employment to increase and 11% expect it to decline, giving a balance of +16%

11.13am BST

UK manufacturing optimism at highest since 1973

Crumbs. Business optimism among UK manufacturers has jumped at its fastest rate in 41 years, according to the CBI's industrial trends survey.

The CBI reports that 41% of businesses said they were more optimistic about the general business situation than three months ago and 8% less, giving a balance of +33%.

“Our industrial base is seizing a bigger role in the UK’s economic recovery, with output, orders and hiring all on the up.

"There are still bumps in the road ahead, with only a tepid recovery likely in the Eurozone, the pound creeping higher and a rapidly evolving situation in Ukraine. However, expectations for growth in the coming three months are positive and manufacturers plan to significantly ramp up investment in the year ahead."

One reason to be cautious, though -- UK factory orders did drop in April, with slightly more firms reporting fewer orders than more. But a strong majority expect orders to rise over the next three months.

Updated at 11.20am BST

11.01am BST

Portugal makes successful return to bond markets

Portugal has achieved a landmark moment -- its first successful bond sale since its bailout.

The Lisbon treasury sold €750m of 10-year debt at an average interest rate, or yield, of just 3.5752%. That's an eight year low -- and a significant show of support from the financial markets for Portugal after years of austerity.

The auction was also oversubscribed, with a bid-to-cover ratio of 3.47 -- meaning many bidders were disappointed.

Another sign that investors are much more confident about buying eurozone debt, two years after the debt crisis was at its height.

Helena adds that the total number of Greeks applying for the "social dividend" (an allowance promised once the primary surplus had been achieved), has shot up to 312,000, according to finance ministry officials in Athens. That's up from 225,000 yesterday.

Updated at 11.00am BST

10.51am BST

Greece's primary budget surplus will (probably) be announced in a few minutes by Simon O'Connor, spokesman for EU economics and finance Commissioner Oli Rehn.

O'Connor told my colleague Helena Smith he will announce it at the beginning of his daily midday press conference " so it should be out by 12:-05 or somewhere around then.... The primary surplus required further calculation by the economic and financial affairs directorate," he said.

When pressed as to what it might be he added: I don't think you should find it a huge surprise."

The Athens' government has already declared that it believes it achieved a surplus (ignoring its debt burden), although there are question marks over the accounting methods...

10.45am BST

The eurozone's total government deficit fell to 3.0% in the year to March 2014, Eurostat has reported, down from 3.7% a year earlier.

This has pushed the total government debt to a new record high of 92.6% of GDP, up from 90.7% a year ago.

Luxembourg was the only EU member to post an actual surplus (+0.1% of GDP), although Germany came close with a balanced budget.

The lowest government deficits in percentage of GDP were recorded in:

Estonia (-0.2%), Denmark (-0.8%), Latvia (-1.0%) and Sweden (-1.1%).

Ten Member States had deficits higher than 3% of GDP, based on Eurostat's methodology. They are:

Eurostat also reported that Greece's total national debt has now hit 175% of GDP -- no word yet, though, on whether it achieved a primary surplus.

Here's more detail:

At the end of 2013, the lowest ratios of government debt to GDP were recorded in Estonia (10.0%), Bulgaria (18.9%), Luxembourg (23.1%), Latvia (38.1%), Romania (38.4%), Lithuania (39.4%) and Sweden (40.6%).

Sixteen Member States had government debt ratios higher than 60% of GDP, with the highest registered in Greece (175.1%), Italy (132.6%), Portugal (129.0 %), Ireland (123.7%), Cyprus (111.7%) and Belgium (101.5%).

Meanwhile, the minutes of the Bank of England's last meeting show that its policy makers have a "range of views" over how much spare capacity is lurking in the UK economy.

The Monetary Policy Committee also reckons the UK economy is growing at a fair lick, around 1% quarter-on-quarter in the first half of this year.

On the spare capacity issue, the MPC is pondering whether the amount of slack in the labour market was understated by the official unemployment rate, if many of Britain's growing army of self-employed workers were actually underemployed and searching for work as employees.

As the minutes puts it:

There was some evidence against this. First, part of the rise in self-employment appeared to be a continuation of a longer-term secular trend, rather than a cyclical response to a lack of other employment opportunities. Consistent with that, higher self-employment did not appear to have been associated with inflows of people recently made redundant. Second, survey evidence suggested that the self-employed were only slightly more likely to be looking for another job than were employees. For some, self-employment might have been chosen as an alternative to retirement, rather than as an alternative to employment.

Nevertheless, it was possible that some of the self-employed were underemployed and would be more productive as employees were more jobs to become available.

The MPC was also in several minds over how UK inflation will change in 2014 and 2015.

As Jeremy Cook of World First puts it:

“The MPC was said to have a “range of opinions” on the path for inflation over the medium term – a very macroeconomic way of saying “your guess is as good as mine, old chap”.

10.17am BST

Today's UK public finance figures also show that revenues from stamp duty jumped 37% in the last financial year, to £12.8bn.

In March alone, the government raked in £1.1 billion from stamp duty, 44% higher than in March 2013. In contrast, VAT income increased by £0.6 billion, or 5.8% compared to the same month last year. Income tax reported in March 2014 increased by £1.0 billion, or 7.8% compared to the same month last year.

In the City, Associated British Foods has surged 9% to the top of the FTSE 100 risers this morning after it posted strong earnings growth (up to 10%) thanks to its Primark clothing division.

ABF also announced it is launching Primark in America, and plans to open its first store in Boston, Massachusetts next year. Can it succeed where so many rivals have failed, by cracking the US retail market?

As my colleague Jennifer Rankin writes:

America has proved to be a graveyard for many foreign retail giants, including Marks & Spencer, WH Smith, Sainsbury's and Tesco. But Primark, which is owned by Associated British Foods, said it had decided to take its concept to consumers in the US after "extensive research."

It's also notable that the geopolitical crisis over Ukraine has not caused any obvious disruption in Germany, despite its close business links with Russia.

Chris Williamson of Markit told Reuters:

"The Ukraine crisis is not dampening business spirits. There may be some concerns among German firms about energy supply but it is not a destabilising force,"

8.44am BST

But Germany's recovery accelerates....

Photograph: Markit

Germany's private sector recovery has accelerated -- with manufacturing and services companies have reported that activity strengthened this month.

Markit's "flash" German services activity index jumped to 55.0, from 53.0 in March, showing healthier growth. Ditto for manufacturing, which rose to 54.2 from 53.7 in March. A much brighter picture than in France.

German firms reported a strong increase in their output -- which rose at the second highest rate in three years. New business growth also accelerated thanks to demand from domestic customers and from overseas, with Asia, Europe and the US all cited as sources of growth.

Companies also took on more staff, with job creation rates close to February’s 25-month high.

It all adds up to a strong month for Europe's largest economy, as Oliver Kolodseike, economist at Markit, explains:

A combination of increased activity, rising new orders and further employment growth across both the manufacturing and service sectors suggest companies will remain in expansion mode during the coming months.

This morning's disappointing French economic data comes just hours before its government explains how its annual borrowings will be brought down to 3% of national output by 2015.

Prime Minister Manuel Valls will give France's finance committee the details of a €50bn package of welfare cuts and savings designed to bring the French deficit into line with EU targets [within the two year extension granted by Brussels].

But as Reuters reports, France has also tweaked its growth forecasts higher, giving no margin for error if they prove too rosy.

France's government is to set out its roadmap to deficit reduction on Wednesday using optimistic growth forecasts considered risky by its own fiscal watchdog to show how it will meet European budget standards by the end of next year.

French private sector recovery 'loses momentum' as PMIs disappoint

Just in: growth in France's private sector has stumbled, according to the monthly survey of the sector from data firm Markit.

Markit warned that the French recovery has "lost momentum" as new business "stagnated", with bosses still cutting jobs and showing little confidence.

It reports that France's manufacturing PMI (based on interviews with purchasing managers across the country) fell to 50.9, from 52.1 in March. That's much weaker than the 51.9 expected by analysts, and shows a sharp slowdown in growth.

The flash Service sector PMI also missed forecasts, dropping to just 50.3 from 51.5 in March. That's worryingly close to the 50 point mark that separates expansion from contraction.

As Markit put it:

Services activity rose only fractionally, while manufacturers indicated a modest increase in production.

Employment in the French private sector fell for the sixth month running in April, reinforcing fears that the eurozone's second largest economy is struggling to achieve solid growth.

Jack Kennedy, Senior Economist at Markit, warned:

“The nascent recovery in French private sector output lost momentum in April. A weaker rise in activity reflected stalling new business, while staffing levels were cut at a sharper rate.

A general hesitancy among clients was reported – until we see a decisive shift in confidence, the business climate looks set to remain frail.”

Photograph: Markit

Updated at 8.17am BST

8.00am BST

China's factory PMI - what the analysts say

Zhou Hao, China economist at ANZ in Shanghai, is encouraged that the Chinese factory PMI rose slightly this month from 48.0 to 48.3, (although that's not high enough to signal growth), saying:

"It's generally in line (with expectations), reflecting that growth momentum is stabilising."

Mike van Dulken, Head of Research at Accendo Markets, agrees:

Investors look to be focused on the slight improvement in April and remain content with the fact that any slowing is not getting any worse than already feared.

But analysts at Nomura are more downbeat, and reckon the Chinese central bank will soon cut borrowing costs in an attempt to stimulate the economy. They told clients:

"We do not believe that this uptick in the HSBC PMI signals any sort of turning point for the economy and continue to believe that growth momentum is on a downtrend."

Chinese factory output falls again

Good morning, and welcome to our rolling coverage of the financial markets, the global economy, the eurozone and business.

A busy day for economic and political news has begun with the news that China's factory sector output has shrunk for a fourth month running, although there are signs that Beijing's stimulus efforts are starting to pay off.

HSBC's monthly PMI survey (which takes the temperature of private sector and state manufacturing firms) came in at 48.3 for April. That's a small improvement on March's 48.0, but still signals that the sector contracted again [anything below 50 = a decline]

HSBC reported that output, new export orders and employment all contracted this month, as these charts shows:

Photograph: HSBC

Photograph: HSBC

Hongbin Qu, HSBC's chief economist for China, said there are still clear downside risks to China's growth prospects, adding:

The State Council released new measures to support growth and employment after the release of Q1 GDP.

Whilst initial impact will likely be limited, they signalled readiness to do more if necessary. We think more measures may be unveiled in the coming months and the PBoC [China's central bank] will keep sufficient liquidity.

The Chinese yuan fell to a 16-month low after the survey was released, hitting 6.2465 to the US dollar. Shares also fell in Shanghai and Hong Kong. Reaction to follow....

Also coming up today....

Is Europe's manufacturing sector faring better this month? We'll get an indication shortly when 'flash' PMI data for France and Germany is released.

In the UK, public finance figures for March are released at 9.30am BST. They'll show whether the British government hit its targets for the 2013-2014 financial year.....

....and the minutes from the Bank of England's latest MPC meeting, also due at 9.30am BST, will show if the committee is moving closer to raising interest rates.

Over in Brussels, the eurozone’s official data agency Eurostat,will release issues its official debt-and-deficit data for 2013. It may confirm that Greece has achieved its goal of a primary budget surplus.

While in Paris, the French government will lay out its plan to bring its deficit into line with the EC's targets by 2015 (just two year's behind schedule...)